Anchorage, railroad settle federal funding fight

The Alaska Railroad operation building is seen in Anchorage. The railroad and the Municipality of Anchorage have settled a fight over the split of federal transportation funds that will revert to the traditional division with the condition the railroad will sell a 20-acre parcel of land near the Port of Anchorage to the city. (Photo/File/AP)

The Municipality of Anchorage and Alaska Railroad Corp. appear to be back on good terms.

Railroad CEO Bill O’Leary said in an Aug. 9 interview that the state-owned railroad reached an agreement last week with Anchorage Mayor Ethan Berkowitz’s administration to settle a multi-year dispute over how annual federal transportation grant funds are split between the two and get millions of dollars flowing into Alaska again.

The formula funds will be split as they always have been for fiscal years 2016-2018, O’Leary said, which is a positive for the railroad that receives the lion’s share of the funding.

The deal also includes an understanding that the railroad will sell the city a parcel of land next to the Port of Anchorage for $1.5 million.

Berkowitz said the 20.2-acre property is “a critical piece” of land that will help the city progress its much-needed overhaul and modernization of port infrastructure.

The standoff that started in 2016 had left more than $23 million with the feds — roughly $15 million for the railroad and $8 million for Anchorage under the earned split — for last year and the first half of 2017, as the FTA would not release the money without the split letter.

As a result, O’Leary said the mayor instead wanted a 50-50 split, which the railroad simply could not agree to.

Not getting just more than $11 million in expected 5307 funds in 2016 pushed the railroad into a $4.4 million loss for the year, according to O’Leary; the first annual loss it posted since 1999.

Both Berkowitz and O’Leary described the agreement as a “win-win” in separate interviews.

“Each one of our organizations had issues we were able to resolve here,” Berkowitz said. “By combining those two (the federal funds and land sale), we were able to do it in a way that solved both problems.”

The Municipality of Anchorage is leasing the property in question and buying it outright will save Anchorage taxpayers over the long-term, Berkowitz stressed.

He also thanked Gov. Bill Walker for helping resolve the issue. Walker's spokesman Jonathon Taylor said the governor simply brought the two sides together for discussions.

Neither the mayor’s office nor the railroad were able to provide the lease rate in time for this article.

O’Leary said the land sale “kind of served as the catalyst to move forward” with the overall settlement.

In late March Alaska Railroad officials told the Journal Berkowitz was refusing to sign a joint letter with the railroad to be sent to the Federal Transit Administration showing the agency each approved of how the pool of federal cash would be split.

Specifically, the “split letter” is for the FTA’s Section 5307 Urbanized Area Funding program meant to support public transit operations across the country.

The two entities must settle on how the funds are apportioned because the Municipality of Anchorage, which has bus service, and the state-owned Alaska Railroad, which has year-round scheduled passenger service, are the two public transportation entities in the city.

While the whole pot of Section 5307 funds is meant to benefit public transportation in Anchorage in general, its total amount is determined by formulas that tally how much is generated by the municipality’s People Mover bus line and how much the railroad generates.

Those formulas are based on route and passenger ridership miles for bus service, and similarly revenue track and route miles for the railroad, as well as population density in the areas served by each.

The letter is the Federal Transit Administration’s way of providing local control over how the money is spent.

Berkowitz contended the railroad, which had historically generated and received about two-thirds of the Section 5307 formula funds, was getting the money on technicalities.

While the Alaska Railroad does indeed offer daily scheduled service in the city — qualifying it for the money — the railroad does not provide the commuter service the city’s bus system does and the funds are intended for, he argued.

The Alaska Railroad’s passenger service is primarily tailored to tourists on sightseeing trips and Alaska residents wanting to make longer trips to other cities or to remote cabins or homes along the tracks.

The railroad has looked into commuter service in Southcentral, but it has never been deemed financially feasible.

When the dispute first surfaced in April when the railroad released its annual results, talks had stopped but the name-calling had started.

Berkowitz said in an interview then that railroad leaders were negotiating like “bullies” and with “petulance,” also accusing an unnamed railroad official of calling him “a terrorist” for standing up for his city.

Alaska’s congressional delegation quietly sent letters to the FTA during the dispute asking if federal Transportation officials had the authority to settle it. Letters from Sen. Lisa Murkowski and Dan Sullivan did not choose sides, but did highlight how the funds were split previously.

Rep. Don Young sided with the railroad in a June 2016 letter to Berkowitz, writing that he only did so because a new split separate from how the funds are generated could kill support in Congress for future FTA funds to Alaska.

Alaska’s delegation has long had to fight to keep up federal support for the state-owned railroad because it does not operate as a traditional Lower 48 commuter service provider.

The Alaska Railroad is the only full-service passenger and freight train corporation in the country. It does not receive state support for its operations, but various federal grants can account for up to about 30 percent of its operating revenue in any given year.

The railroad has fallen on hard times in recent years as its freight business, which was once primarily from coal exports and the now-closed Flint Hills oil refinery in North Pole, has declined precipitously.

Low oil prices have also slowed North Slope spending and correspondingly led to fewer equipment and material hauls on the rails for oil and gas projects.

Now that a deal has been reached, the remarks from each side are much more measured.

“We were able to get this land on terms that are attractive,” Berkowitz said. “The railroad is going through difficult financial times. The split, as configured, was very important to them.”

He added that continuing the existing funding apportionment through 2018 allows the city and railroad to “find other ways of supporting each other” in the interim. Berkowitz’s first term as Anchorage mayor runs through June 2018.

O’Leary noted that because the railroad is owned by the state, the property sale will have to be approved by the Legislature and railroad officials will be in Juneau next spring to make that happen.

“I think this is a good thing for the municipality and the railroad to put behind us,” O’Leary said.